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Medical device companies brace for return of Affordable Care Act tax

During the three years that the government collected a tax on sales of medical devices, Maple Grove’s Inspire Medical Systems never turned a profit on its sleep apnea treatments.

CEO Tim Herbert says the company could have had 12 to 15 more employees if that tax money, which helped pay for the Affordable Care Act, had stayed in-house.

Herbert never understood why lawmakers thought it was productive to tax the revenue of Inspire and other device companies that had yet to operate in the black. Now that a two-year suspension of the tax is about to expire, he’s more frustrated than ever.

Despite lawmakers’ promises, the failure of Congress to kill the device tax has forced Herbert and leaders of hundreds of other Minnesota medical technology companies to adjust budgets and spend money to resurrect or create payment systems for a levy many thought would go away.

With the first installment of the reinstated 2.3 percent device excise tax due Jan. 29, Herbert says he “can’t count on” Congress to act.

“We are already committing dollars to prepare to be compliant if [the tax] is reinstated,” he said. “We will dedicate staff to [collecting and paying the tax]. And we will change our annual operating budget because we now have to account for those losses.”

The same scenario is playing out across the state’s massive device sector.

Cogentix is a urology device maker in Minnetonka that is projected to take in about $64 million in revenue in 2018.

“We held out hope that [the device tax] would be repealed,” Chief Financial Officer Brett Reynolds said. “Going forward, it could cost us $600,000 or $800,000 [per year]. That’s a meaningful number that we would otherwise invest in people, perhaps R&D, potential new business development. I’m sure the money is spent well within the government, but we’d rather put those dollars to work here.”

The device tax helps fund the ACA, which provides income-based subsidies credited with helping to expand health care coverage to millions of people.

Several legislative vehicles exist to keep the device tax from coming back.

But only one, a Jan. 19 deadline for a budget resolution, has a set date. Others, such as a bipartisan extension of Medicare benefits or a separate tax extensions package, could come to a vote in January.

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